APR stands for annual percentage rate and it is basically the amount of interest along with any other associated fees that you need to pay on the borrowed money. Thus, 0 APR car deal means that you don’t have to pay any interest or any other associated fees on the amount. All you need to do is pay some initial deposit and the borrowed sum of money is returned in by a series of monthly payments without worrying about the interest component.
Whenever one sees the 0% APR option, it is bound to raise the red flag as to why will someone offer you a loan without asking for any interest.
0 APR Car Deal: What’s the Catch?
You need to understand that such offers are given by manufacturers only for cars that they want to offload for some reason. It is possible that the demand has gone down and there’s an overstock of those cars, a recession is about to hit the industry or the manufacturer wants to discontinue that particular make of cars. In each of these conditions, they will come up with zero percent car loan offers to offload whatever stock they have rather than not selling them at all.
Besides these reasons, the other catch that you should be looking for is to check if there is a cost increase somewhere else to make up for the lost interest in the deal. It’s a well-known fact that businessmen, whether the carmakers or the dealers, are not sitting there to do charity. They hate to lose money and getting such a lucrative offer from them requires tight scrutiny. You need to see if they are offering less on the trade-ins or trying to sell high-margin items to recover the lost profit.
Calculate If 0% APR or a Rebate Is a Better Deal
Most of the manufacturers offer 0% financing along with a second offer. This second offer is with an interest rate but a cashback rebate. You should work the maths in both cases taking into account your cash down amount, the interest rate offered to you, final purchase price and also the amount of loan you want. Running the math will present you the actual numbers based on which you should decide on going with either.
If the numbers are close enough, then you should factor in other things like the full benefits of a 0% APR do not show up until the end of the loan. In the case of a rebate, the benefits are immediate. Also, if you plan to sell your vehicle before the loan term ends, then you will lose on 0% APR loan savings and in that case, the rebate option makes more sense.
The 0 APR car deal is lucrative at first sight, but to decide whether to opt for it or not, you should take into account all the numbers to find out the total loan cost. Only if it is better than any other option, you should go for it.